Types of Business Organization
Growth and Expansion
Internal growth:
Internal growth is where the growth of a business is a result of a decision or investment that is made by the business itself. They use their own resources to achieve growth.
External growth:
External growth can be achieved when a business or firm engages in Mergers and acquisitions to grow. This is often faster than building a product from scratch.
Merger:
Where two companies join together by mutual agreement. They can either establish a new company or keep separate identities.
Vertical Integration
Where two companies engaged at different stages of production of a good and joined together. Example Apple and Intel.
Horizontal Integration
Where two companies are engaged in the same stage of production of a good and join together. The amalgamation of Daimler-Benz and Chrysler is a popular example of a horizontal merger.
Conglomerate Integration
Where mergers occur where the products of the companies involved are unrelated. Conglomerates are often defensive, anticipating a decline in the purchasing company’s main market.
Business Failure
Why do businesses remain small?
Businesses remain small because of a variety of factors. One common factor is that businesses do not have enough finances to be able to expand their businesses and eventually grow them.
Why are new businesses at greater risk?
Newer businesses are at risk because the product or service that they produce is not as popular as their larger competitors, which make their chances of growth minimal
Analyze the common cause of business failure:
A possible common cause of business failure is over-expansion, where businesses tend to try many new things at once, leading to less focus on the products that contribute to revenue well.
Sole Trader:
A Sole Trader is a person who has a business that is entirely owned and run by them.
Advantages:
- Allows for Financial Freedom
- Can work on their own time
Disadvantages:
- Has full liability on everything
- Is the only person with decision making power
Unlimited Liability:
Unlimited liability means that the sole trader has unlimited responsibilities and that could translate to debt. If a sole trader’s business needs to pay debts or payments in which they don’t have the money for, then the owner needs to contribute from personal finances. This could mean that they have to sell their cars, houses or other things in order to repay their debt.
Partnership
A partnership is when a group of individuals (2 or more) own a business or startup. Partnerships can raise money by everyone providing finances with personal capital. Another method is by taking a loan from the bank. Partnerships can employ others to work in the business but will be responsible for running it themselves.
Advantages:
- Better decision-making power
- Less individual responsibility and liability
- Less individual finance required for initial start-up
Disadvantages:
- Although it is less, there is still an unlimited liability
- Profits are shared
- Conflicts can arise often
Joint Venture:
A business or company that is made by two different companies which both create another business.
(e.g. Google and NASA creating Google Earth)
Advantages:
- Costs are shared between the two businesses and it is important for expensive projects such as those in the airline industry
- Risks are shared
Disadvantages:
- If the new project successful, then the profits have to be shared with the joint venture partner
- Disagreements can cause conflict
- The two joint venture partners might have different ways of running a business
Franchise:
A company that expands their place of work to other areas, such as the different US States or even international countries
(e.g. McDonalds, UPS, etc.)
Franchisor:
The individual or business that owns a franchise
Public Limited Company:
A public limited company (‘PLC’) is a company that is able to offer its shares to the public. PLC’s are based in the United Kingdom and must have the letters “PLC” after the company’s name. It is equivalent to the United States’ “Inc.”
Private Limited Company:
A private limited company is a company that doesn’t offer shares publicly and is limited to a maximum of 50 shareholders.
Public Corporation:
A public corporation is a business that is owned and operated by the government of a country and is considered to be a part of the public sector.
